Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
@Ted Howdy. Really ? Will you expand your thoughts about...."TIPS are for investors who fear the future without cause." ? Your explanation would be of particular benefit for newer investors. Take care, Catch
Howdy @hank, We already know the here and now for inflation; relative to the grocery store and/or restuarant pricing, eh? Take care up there and be kind to the tourists headed your way beginning this weekend. Catch
Not an expert on the bond/inflation stuff. The folks buying these TIPS with the 2.2% projected inflation expectations could well be right.
However, I do know that the snack-sized pack of pistachios I buy at Walgreens just shrank from its previous 1.5 ounce size to only 1 ounce while retaining the same price. It appears to me that overnight the dollar in my pocket has shrunk by 33% whenever I walk into Walgreens and buy my favorite snack. So ..... I see that anticipated 2.2% annual inflation rate and wonder.
None of this should be interpreted as being a "bond hater." I own a lot of them, mostly through balanced/hybrid-type funds, and am aware that they come in many different forms and provide stability and other benefits to a balanced age-appropriate portfolio.
Catch: Speaking of tourists and inflation, looks like the gas tax in the state is going to jump big-time over the next few years.
TIPS serve the same category as Gold (even with the nominal dividends in the former).
Some, like me, use TIPS funds either as momentum trades for total return or as diversifiers for total return from capital gains rather than dividends. Some use it for fear of what may happen in future. The worst imagined case is unlikely to happen to justify the speculation in these categories. But like Gold, one can benefit from the speculation.
Separate out buying TIPS as individual bonds to hold for dividends and buying TIPS mutual funds. They are completely different asset classes to own for all practical purposes. The former is like owning very expensive insurance against catastrophic inflation that you might never need. The latter has very little to do with inflation and yield and everything to do with total return from capital appreciation from the "fear trade" just like Gold.
But like Gold, the TIPS funds can have significant drawdowns when the sentiments change which makes their inflation protection argument meaningless.
Like Gold, one can crow about TIPS while the inflation expectation (different from inflation) speculation is creating capital appreciation and be silent when it is suffering.
More "inflation" noted by a frustrated Amazon shopper:
Amazon continues to restrict the "free" Prime shipping - recently imposing a $25 minimum for smaller "Prime" items to ship free (even for Prime members). We needed a small order by next week totaling about $24.50. Attempted to meet the $25 threshold by adding an inexpensive used CD from one of their third party sellers. No Go. They now require all the included items be "Fulfilled by Amazon" (Translated: that generally means more expensive.)
Paying higher dollar amounts for the same products and services seems to fit the definition of "inflation" very well. Certainly, the added costs of the Prime restrictions in recent years exceed the hypothetical 2.2% inflation rate. To be fair, it probably has more to do with price increases at FEDX and UPS than any intent by Mr. Bezos go gouge shoppers.
(Sorry David. Hate to bite the hand that feeds us here at MFO. Still like Amazon a lot for generally competitive prices, super convenience, great customer service and excellent support when returning items.) Regards.
@Ted: "TIPS are for investors who fear the future without cause." Maybe you are only referring to their purchase right now, but not to TIPS in general? TIPS can be a great investment. I purchased a 10-year TIPS somewhere around the 1997 time frame. It had a coupon of 4 and 1/8 or 4 and 1/4, don't recall which. I held it to maturity, and received the 4 1/8 or 4 1/4 each year for 10 years, plus inflation adjustments. I purchased it directly from Treasury Direct with no fees. The total return was very acceptable, especially since I took no risk. I did not "fear" the future.
Check out what some notables such as David Swensen, Larry Swedroe, Bill Gross, William Bernstein, Rick Ferri and others (who highly favor them) have said about TIPS. A lot of academics, e.g., PhD economists and finance professors at universities, have great things to say about TIPS. William Bernstein and others recommend laddered TIPS, held to maturity, as an excellent risk free retirement planning tool.
I wouldn't buy a TIPS currently, because the yield is way too low for me to think that this is an attractive investment at this time. But when the real yields on TIPS are attractive, I play to buy them. I find it amazing that some have purchased them at times when real yields were negative. That's not a Ben Graham type value proposition to me.
You don't need to "fear the future without cause" to buy TIPS. You just need to be a student of market history, and inflation history.
Historically, inflation has been one of the biggest threats to the portfolio of a retired person. Or perhaps the biggest threat. This is very fundamental.
I have no forecast for inflation and interest rates. I'm not a market forecaster.
In 1979, inflation averaged 11.3%; In 1980, 13.5%; In 1981, inflation averaged 10.3%. Even in 1990 it was 5.4%
Using the common TIP etf as the charting choice; one may view the previous 3 years.
TIP, 50 100 200 day, simple moving average Note the pricing of the asset and forget the yield. This is a type of asset, not unlike any other to be considered for an invesment. Be it for 3 months or 3 years or.....
We (family) have not used any TIPs related funds or etfs to obtain a yield. The overriding consideration for many of our bond fund holdings, and in particular TIPs, is related to pricing. @rjb112. You noted buying TIPs or related funds; but not now, as the yield is too low. The yield is low now, in part; due to supply/demand. Not unlike the 10 year Treasury; if it were to begin showing lower yields starting next week and continuing for the next 6 months. I wouldn't be concerned about investing in these going forward. I would not be investing for the yield; but for the upward move in pricing that would be taking place at the same time. I have seen too many times from the talking heads on tv and in writings about why would anyone want to invest in a 10 year bond offering only X% yield back in 2010 and/or 2011. 'Course, the yield continued to move lower and the price higher. The "wise" talking heads seldom mention the monies to be made in the pricing. They mostly speak/write about the lowly yield. They surely weren't educating their viewers or readers. Similar bond actions were in place for the high yield sector in early 2009. But, with these; some folks were only looking at the 20% yields. All well and good, to be sure. But the big money was made with the much oversold pricing of this bond sector as the Fed continued their actions to rescue the financial sectors. Not unlike equity holdings; we also view bond sectors for their unlying prices, and place much less consideration for a yield that may be obtained. I do not know if this is a common practice of bond investing among individual investors or not. But, this is how we view this investment area. The original post and links for this thread were related to inflation; but is not the reason for our TIPs holding since February. All things being in place at the right time; also allow TIPs to provide more upward pricing action from more than a demand from any inflation perception, and this is an area of "risk-off" in equity sectors and global events that may be worrisome for a period of time. Folks will travel to TIPs as well as other Treasury areas for "safety". A bonus possibility.
Summary for this house (family). Bond pricing has trends for a variety of reasons, not unlike equity sectors. During a stagnate market place; one could hold a 10 year Treasury fund and an equity based fund, both yielding 2.5%; and find no difference in total return at the end of a given period. We do use active managed bond funds to sort the details and make purchases that would be beyond our abilities and accessablity. Most importantly is to each for their own reasons for investments. Lastly. We do our best to invest for a decent, risk/reward return. We are not fussy about the sectors involved. Take care, Catch
My tips fund VTIPX is doing what call it could be doing. My other "inflation protection" fund PDRMX unfortunately is not, but doing better that it was but has some catching up.
cman makes an excellent point: A bond fund is not a bond. A much different animal. He explained this lot better than I could.
I made a few pennies on a TIPS fund about a year ago when rates spiked to near 3% on the 10-year. I thought that was too far too fast. Sold it couple months later when rated pulled back - a bit too soon in retrospect.
As others have postulated, as a retired person I fear inflation more than deflation. However, both are destructive to wealth in their own ways.
I've made a lot of money on TIPS, both as mutual funds and individual issues. A couple of years ago, I sold the funds and bought more individual issues so I can hold to maturity and not lose money.
What are the advantages of buying a fund other than losing some return to annual expenses? It is not like we need to diversify risk since they are all guaranteed by the government.
One reason to NOT buy a fund is to not get stuck with new purchases of individual TIPS with negative real rates. I only buy when the real rate is positive, an option you don't have with a mutual fund that might have to pay up to buy lower return TIPS for new money coming in which lowers the quality/return of the overall portfolio.
@JohnChisum; I like his third point, "Third, and related to the prior point: Investors who pour money into inflation-indexed bonds must be complete morons, because they are locking up money for ten years at what is “really” -9% real yields (meaning that they are surrendering 62% of the real purchasing power of their wealth, rather than spending it immediately). Regards, Ted
You noted: "What are the advantages of buying a fund other than losing some return to annual expenses? It is not like we need to diversify risk since they are all guaranteed by the government."
>>>More or less, the average E.R. of an active managed TIPs fund is .5%; which is about the same, as the E.R. for a mutual fund company, money market fund. So, yes; one does give up some performance with E.R. costs, versus buying TIPs directly from the Treasury. As to diversity; this is an investment sector where one may prefer to allow a manager(s) to use their skills in assessing the TIPs market. A management decision for this sector would be the selection (buys and sells) of the most favorable durations for the best possible performance at any given time. For me, this is the advantage. TIPs variances may be discovered, in part, viewing the returns of the following: LTPZ STPZ TIP or one's other choices.
You noted: "One reason to NOT buy a fund is to not get stuck with new purchases of individual TIPS with negative real rates. I only buy when the real rate is positive, an option you don't have with a mutual fund that might have to pay up to buy lower return TIPS for new money coming in which lowers the quality/return of the overall portfolio."
>>>I prefer the choice of being able to buy or sell a TIPs fund on any given day of my choosing. The managers may manage the fund; I will manage when to be in or out of a fund. If I considered buying TIPs directly; I wouldn't feel comfortable with the duration selection. Which duration? Or would one mix the durations? The $10,000 individual annual purchase limit is also a no-go for me.
Side note: Viewing active managed TIPs funds returns on a daily basis, as related to the daily long and short term duration TIPs returns usually gives one a good indication of the duration holdings of an active managed fund, at the time.
Are you able to provide data to support that active managed TIPs funds have been a "bad investment"; say, over the past 15 year period, relative to other major asset classes?
Lastly, I have not expressed that TIPs are a buy and hold propostion. They have their cycles, not unlike other asset classes.
In the interests of spreading clarity and knowledge, will people please mention whether they are talking about the bond or the fund when they make a statement on the pros or cons of TIPS? And stop assuming that whichever one they have in mind when they just say TIPS isn't necessarily what others have in mind?
It is clear that at least some do not understand what a bond fund returns vs what a bond held to maturity returns. Why contribute to that confusion?
Howdy @cman, I believe that I have clarified I am discussing active managed funds in particular. Your notation, however; is indeed correct about a bond or fund. Thank you. Catch
@rjb112, when you buy a TIPS bond, you are insured against "inflation" risk in theory. The premium you pay for this is the spread between the equivalent Treasury which on the average is about 2% and the opportunity costs when yields rise during that tied up period relative to other investments. You have to judge your insurance against the cost of that premium. It doesn't matter what the current rates are for that determination between TIPS and Treasuries, only the spread.
In practice, for these times with an active Fed, I find that premium too high because I think the possibility of a rapid rise in inflation is too low for the premium asked and why I call this a "fear trade" like Gold. Gold bugs make the same argument and pay an even higher premium.
Even if that rapid rise were to happen, it would likely be preceded by a massive economic expansion (except in the specific case of stagflation) where the returns on equities would be much higher during that period. This provides a cushion against inflation if one was invested properly as opposed to money being invested in future hedge against inflation during that expansion.
In the case of a slow rise in inflation, I do not feel TIPS bonds provide sufficient insurance against the kind of purchasing power erosion that is not captured in official inflation numbers. It is not the rise in cereal prices or gas or the things I have control over in consumption that I worry about. It is the rise in health care costs, or for people who need them, rents or education or day care expenses for children that is the real killer of wealth/savings. TIPS bonds don't even come close to covering it. Besides, you would have to invest a significant of money in TIPS bonds for the inflation benefits to make a practical difference in one's expenses.
Obviously, the above opinions are subjective and not well quantified to be certain. But insurance is always a tough area to quantify when you need to take into account the probability of future events.
I think TIPS bond purchases are best for high net worth individuals who can deploy a large amount of cash into them without the opportunity costs or premiums on it creating shortfall risks for them.
TIPS Bond funds, where you can capture capital gains from the inflation speculation trade is a different story.
Excellent cman. You know, one thing I dislike about TIPS mutual funds, and one reason I have never invested in one, is that you buy TIPS for inflation protection. Yet, inflation often (not always, but often) goes hand in hand with increased interest rates. And increased interest rates cause the price of those very same TIPS bonds to go down, the exact opposite of what the investor wanted during those times.
A couple of years ago, I sold the funds and bought more individual issues so I can hold to maturity and not lose money.
Did you lose money relative to having bought equivalent Treasuries at higher yields instead? The inflation guarantee is not free lunch.
What are the advantages of buying a fund other than losing some return to annual expenses? It is not like we need to diversify risk since they are all guaranteed by the government.
Funds (or if you were a trader in bonds) allow you to capture capital appreciation in the inflation speculation as well as in yield movements as in any bond fund where in good times, the yields are dwarfed by the capital appreciation. The risk is capital loss for the same conditions going against you. Just like any investment asset class. You don't buy bond funds for the same reasons you buy individual bond funds. For all practical purposes, they are separate asset classes.
One reason to NOT buy a fund is to not get stuck with new purchases of individual TIPS with negative real rates. I only buy when the real rate is positive, an option you don't have with a mutual fund that might have to pay up to buy lower return TIPS for new money coming in which lowers the quality/return of the overall portfolio.
Then you shouldn't be buying any bond funds because the very similar argument can be made for interest rate risks as for inflation risks.
Bond funds are instruments that help you make money (or lose money) on trading of bonds while providing liquidity for your investment. Yields are just one component of it.
With bonds, you sacrifice liquidity if you don't need it for guaranteed yield.
I used to have a inflation protection fund in my stable but sold it when it became apparent that Bernanke was not going to allow inflation to happen. Fed actions and how they determine inflation now makes it less certain it will come.
I invested early on in the first gulf war. I used the example of Vietnam and the inflation of the seventies as my reasoning. Guns and butter whether in the sixties or the early 2000's would have the same effect. Well it didn't work out that way.
Everything is going up in price but we have to go by the govt measures to see if inflation is here or not.
Comments
Good Luck!
Regards,
Ted
Howdy. Really ?
Will you expand your thoughts about...."TIPS are for investors who fear the future without cause." ? Your explanation would be of particular benefit for newer investors.
Take care,
Catch
We already know the here and now for inflation; relative to the grocery store and/or restuarant pricing, eh?
Take care up there and be kind to the tourists headed your way beginning this weekend.
Catch
However, I do know that the snack-sized pack of pistachios I buy at Walgreens just shrank from its previous 1.5 ounce size to only 1 ounce while retaining the same price. It appears to me that overnight the dollar in my pocket has shrunk by 33% whenever I walk into Walgreens and buy my favorite snack. So ..... I see that anticipated 2.2% annual inflation rate and wonder.
None of this should be interpreted as being a "bond hater." I own a lot of them, mostly through balanced/hybrid-type funds, and am aware that they come in many different forms and provide stability and other benefits to a balanced age-appropriate portfolio.
Catch: Speaking of tourists and inflation, looks like the gas tax in the state is going to jump big-time over the next few years.
TIPS serve the same category as Gold (even with the nominal dividends in the former).
Some, like me, use TIPS funds either as momentum trades for total return or as diversifiers for total return from capital gains rather than dividends. Some use it for fear of what may happen in future. The worst imagined case is unlikely to happen to justify the speculation in these categories. But like Gold, one can benefit from the speculation.
Separate out buying TIPS as individual bonds to hold for dividends and buying TIPS mutual funds. They are completely different asset classes to own for all practical purposes. The former is like owning very expensive insurance against catastrophic inflation that you might never need. The latter has very little to do with inflation and yield and everything to do with total return from capital appreciation from the "fear trade" just like Gold.
But like Gold, the TIPS funds can have significant drawdowns when the sentiments change which makes their inflation protection argument meaningless.
Like Gold, one can crow about TIPS while the inflation expectation (different from inflation) speculation is creating capital appreciation and be silent when it is suffering.
Amazon continues to restrict the "free" Prime shipping - recently imposing a $25 minimum for smaller "Prime" items to ship free (even for Prime members). We needed a small order by next week totaling about $24.50. Attempted to meet the $25 threshold by adding an inexpensive used CD from one of their third party sellers. No Go. They now require all the included items be "Fulfilled by Amazon" (Translated: that generally means more expensive.)
Paying higher dollar amounts for the same products and services seems to fit the definition of "inflation" very well. Certainly, the added costs of the Prime restrictions in recent years exceed the hypothetical 2.2% inflation rate. To be fair, it probably has more to do with price increases at FEDX and UPS than any intent by Mr. Bezos go gouge shoppers.
(Sorry David. Hate to bite the hand that feeds us here at MFO. Still like Amazon a lot for generally competitive prices, super convenience, great customer service and excellent support when returning items.) Regards.
Maybe you are only referring to their purchase right now, but not to TIPS in general?
TIPS can be a great investment. I purchased a 10-year TIPS somewhere around the 1997 time frame. It had a coupon of 4 and 1/8 or 4 and 1/4, don't recall which. I held it to maturity, and received the 4 1/8 or 4 1/4 each year for 10 years, plus inflation adjustments. I purchased it directly from Treasury Direct with no fees. The total return was very acceptable, especially since I took no risk. I did not "fear" the future.
Check out what some notables such as David Swensen, Larry Swedroe, Bill Gross, William Bernstein, Rick Ferri and others (who highly favor them) have said about TIPS. A lot of academics, e.g., PhD economists and finance professors at universities, have great things to say about TIPS. William Bernstein and others recommend laddered TIPS, held to maturity, as an excellent risk free retirement planning tool.
I wouldn't buy a TIPS currently, because the yield is way too low for me to think that this is an attractive investment at this time. But when the real yields on TIPS are attractive, I play to buy them. I find it amazing that some have purchased them at times when real yields were negative. That's not a Ben Graham type value proposition to me.
You don't need to "fear the future without cause" to buy TIPS. You just need to be a student of market history, and inflation history.
Historically, inflation has been one of the biggest threats to the portfolio of a retired person. Or perhaps the biggest threat. This is very fundamental.
I have no forecast for inflation and interest rates. I'm not a market forecaster.
In 1979, inflation averaged 11.3%; In 1980, 13.5%; In 1981, inflation averaged 10.3%.
Even in 1990 it was 5.4%
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
It can happen. TIPS can be a very prudent investment for the risk averse investor, when he is compensated with a decent coupon, a decent real yield.
Regards,
Ted
Howdy,
Using the common TIP etf as the charting choice; one may view the previous 3 years.
TIP, 50 100 200 day, simple moving average Note the pricing of the asset and forget the yield. This is a type of asset, not unlike any other to be considered for an invesment. Be it for 3 months or 3 years or.....
We (family) have not used any TIPs related funds or etfs to obtain a yield. The overriding consideration for many of our bond fund holdings, and in particular TIPs, is related to pricing. @rjb112. You noted buying TIPs or related funds; but not now, as the yield is too low. The yield is low now, in part; due to supply/demand. Not unlike the 10 year Treasury; if it were to begin showing lower yields starting next week and continuing for the next 6 months. I wouldn't be concerned about investing in these going forward. I would not be investing for the yield; but for the upward move in pricing that would be taking place at the same time.
I have seen too many times from the talking heads on tv and in writings about why would anyone want to invest in a 10 year bond offering only X% yield back in 2010 and/or 2011. 'Course, the yield continued to move lower and the price higher. The "wise" talking heads seldom mention the monies to be made in the pricing. They mostly speak/write about the lowly yield. They surely weren't educating their viewers or readers.
Similar bond actions were in place for the high yield sector in early 2009. But, with these; some folks were only looking at the 20% yields. All well and good, to be sure. But the big money was made with the much oversold pricing of this bond sector as the Fed continued their actions to rescue the financial sectors.
Not unlike equity holdings; we also view bond sectors for their unlying prices, and place much less consideration for a yield that may be obtained.
I do not know if this is a common practice of bond investing among individual investors or not. But, this is how we view this investment area.
The original post and links for this thread were related to inflation; but is not the reason for our TIPs holding since February.
All things being in place at the right time; also allow TIPs to provide more upward pricing action from more than a demand from any inflation perception, and this is an area of "risk-off" in equity sectors and global events that may be worrisome for a period of time. Folks will travel to TIPs as well as other Treasury areas for "safety". A bonus possibility.
Summary for this house (family). Bond pricing has trends for a variety of reasons, not unlike equity sectors.
During a stagnate market place; one could hold a 10 year Treasury fund and an equity based fund, both yielding 2.5%; and find no difference in total return at the end of a given period.
We do use active managed bond funds to sort the details and make purchases that would be beyond our abilities and accessablity.
Most importantly is to each for their own reasons for investments.
Lastly. We do our best to invest for a decent, risk/reward return. We are not fussy about the sectors involved.
Take care,
Catch
I made a few pennies on a TIPS fund about a year ago when rates spiked to near 3% on the 10-year. I thought that was too far too fast. Sold it couple months later when rated pulled back - a bit too soon in retrospect.
As others have postulated, as a retired person I fear inflation more than deflation. However, both are destructive to wealth in their own ways.
What are the advantages of buying a fund other than losing some return to annual expenses? It is not like we need to diversify risk since they are all guaranteed by the government.
One reason to NOT buy a fund is to not get stuck with new purchases of individual TIPS with negative real rates. I only buy when the real rate is positive, an option you don't have with a mutual fund that might have to pay up to buy lower return TIPS for new money coming in which lowers the quality/return of the overall portfolio.
Thanks
http://mikeashton.wordpress.com
Regards,
Ted
You noted: "What are the advantages of buying a fund other than losing some return to annual expenses? It is not like we need to diversify risk since they are all guaranteed by the government."
>>>More or less, the average E.R. of an active managed TIPs fund is .5%; which is about the same, as the E.R. for a mutual fund company, money market fund. So, yes; one does give up some performance with E.R. costs, versus buying TIPs directly from the Treasury.
As to diversity; this is an investment sector where one may prefer to allow a manager(s) to use their skills in assessing the TIPs market. A management decision for this sector would be the selection (buys and sells) of the most favorable durations for the best possible performance at any given time. For me, this is the advantage. TIPs variances may be discovered, in part, viewing the returns of the following: LTPZ STPZ TIP or one's other choices.
You noted: "One reason to NOT buy a fund is to not get stuck with new purchases of individual TIPS with negative real rates. I only buy when the real rate is positive, an option you don't have with a mutual fund that might have to pay up to buy lower return TIPS for new money coming in which lowers the quality/return of the overall portfolio."
>>>I prefer the choice of being able to buy or sell a TIPs fund on any given day of my choosing. The managers may manage the fund; I will manage when to be in or out of a fund. If I considered buying TIPs directly; I wouldn't feel comfortable with the duration selection. Which duration? Or would one mix the durations? The $10,000 individual annual purchase limit is also a no-go for me.
Side note: Viewing active managed TIPs funds returns on a daily basis, as related to the daily long and short term duration TIPs returns usually gives one a good indication of the duration holdings of an active managed fund, at the time.
Perhaps of interest: http://www.nuveen.com/Home/Documents/Viewer.aspx?fileId=56370
The link is a Nuveen TIPs document from June, 2013. Exhibit 1, of the document, is an interesting notation.
Best wishes to you, with your individual TIPs holdings.
Regards,
Catch
Regards,
Ted
Are you able to provide data to support that active managed TIPs funds have been a "bad investment"; say, over the past 15 year period, relative to other major asset classes?
Lastly, I have not expressed that TIPs are a buy and hold propostion. They have their cycles, not unlike other asset classes.
Take care,
Catch
It is clear that at least some do not understand what a bond fund returns vs what a bond held to maturity returns. Why contribute to that confusion?
I believe that I have clarified I am discussing active managed funds in particular.
Your notation, however; is indeed correct about a bond or fund.
Thank you.
Catch
In practice, for these times with an active Fed, I find that premium too high because I think the possibility of a rapid rise in inflation is too low for the premium asked and why I call this a "fear trade" like Gold. Gold bugs make the same argument and pay an even higher premium.
Even if that rapid rise were to happen, it would likely be preceded by a massive economic expansion (except in the specific case of stagflation) where the returns on equities would be much higher during that period. This provides a cushion against inflation if one was invested properly as opposed to money being invested in future hedge against inflation during that expansion.
In the case of a slow rise in inflation, I do not feel TIPS bonds provide sufficient insurance against the kind of purchasing power erosion that is not captured in official inflation numbers. It is not the rise in cereal prices or gas or the things I have control over in consumption that I worry about. It is the rise in health care costs, or for people who need them, rents or education or day care expenses for children that is the real killer of wealth/savings. TIPS bonds don't even come close to covering it. Besides, you would have to invest a significant of money in TIPS bonds for the inflation benefits to make a practical difference in one's expenses.
Obviously, the above opinions are subjective and not well quantified to be certain. But insurance is always a tough area to quantify when you need to take into account the probability of future events.
I think TIPS bond purchases are best for high net worth individuals who can deploy a large amount of cash into them without the opportunity costs or premiums on it creating shortfall risks for them.
TIPS Bond funds, where you can capture capital gains from the inflation speculation trade is a different story.
You know, one thing I dislike about TIPS mutual funds, and one reason I have never invested in one, is that you buy TIPS for inflation protection. Yet, inflation often (not always, but often) goes hand in hand with increased interest rates. And increased interest rates cause the price of those very same TIPS bonds to go down, the exact opposite of what the investor wanted during those times.
Regards,
Ted
1. Preferred Stock: 16.82%
2. High-Yield: 13.25%
3. Multi-Sector: 10.06%
4. Corporate Bonds: 9.88%
5. Emerging Market: 9.60%
6. LongTerm Bonds: 8.35%
7. Long Gov. : 8.06%
8. Nontraditional: 6.29%
9. Int. Bonds: 6.26%
10. World Bonds: 6.07%
11. TIPS: 5.01%
Bond funds are instruments that help you make money (or lose money) on trading of bonds while providing liquidity for your investment. Yields are just one component of it.
With bonds, you sacrifice liquidity if you don't need it for guaranteed yield.
Again, two different investment classes.
I invested early on in the first gulf war. I used the example of Vietnam and the inflation of the seventies as my reasoning. Guns and butter whether in the sixties or the early 2000's would have the same effect. Well it didn't work out that way.
Everything is going up in price but we have to go by the govt measures to see if inflation is here or not.